Activity based management is a method of identifying and evaluating activities that a business performs using activity-based costing to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization.
Activity-based costing establishes relationships between costs and activities so that costs can be more precisely allocated to products, services, or customer segments. Activity-based management then focuses on managing activities to reduce costs, improve margins and enhance customer value.
The essence of what we are doing for our clients is that we help them to accurately measure and improve the profitability of their business segments, customers, locations, brands, products and SKUs. Experience has shown that in a normal scenario, typically 20% of the products are making 200% of the profit, 60% are breaking even and 20% are making 100% of the loss.
Our projects can be a one off analysis lasting from 3-5 weeks during which we identify “quick win” potential for profitability improvement or an on-going relationship during which we help the clients to build a comprehensive tool for the tracking and improvement of operational inefficiencies and management of their customer and product portfolio.
Whereas production companies normally measure the utilisation of the machinery we strongly believe that no matter the sector any company should take the same approach with all of its productive assets, irrespective of the sector within which it operates in. For example, an average employee works 1,800 hours per year and outstanding companies usually measure the utilisation of its employees on recurring tasks (e.g. number of invoices booked, number of insurance claims processed, number of customers orders entered). Only once this is done can the effective costs then be allocated to products and customers in order to calculate the exact profitability.